When you’re thinking of buying or selling a home, one of the most important decisions you’ll make is choosing the agent who is competent and will represent your best interests. Here are some of the myths buyers and sellers may have about real estate agents and commissions.

Seller pays agent Commission so it doesn’t matter to Buyer

The truth is that as soon as a buyer buys, he/she gets something which is equivalent to “negative equity” which has to be often recouped with years of price appreciation, making real estate purchase riskier than it needs to be.

I can find a buyer / seller by myself if I did for sale by owner or tried to find private sales.

The truth is that you could, but the job will be hard and time-taking for you to find the principal directly on the other side and the job you will do is likely going to be worse than someone who does this as a full-time job, and mistakes you make could be costly. Agent’s job is not just to do showings and open houses. Your risk is firstly in overpaying as a buyer or not getting enough as a seller, by not being to accurately value a property based on lack of access to broad and accurate MLS based comparable properties and detailed market knowledge.

Secondly, the risk is in neglecting many complexities of a transaction including complex disclosures, title and lien reports, environmental reports and surveys, insurance and lender requirements and contract legalese. Lawsuits can be costly and without thorough understanding of contract legalese, is not a risk worth taking. Without an MLS system with past database of properties, which is agent cooperation and agent effort based, you as a principal would not have much luck to find out what is on market either as a search and also to do accurate comparable properties for valuation. For a better understanding of what agents do – read the service tiers which is a partial attempt at defining the services agents perform. Key is to agree and understand – Agents are needed, however high commission may not be!

Real Estate Agents Charge high commission for too little work

There is some truth that commissions are indeed high; but yet most real estate agents don’t earn enough and many go out of business. Buyers not having to pay for anything until they buy, often spend 100’s of hours or several months of “free time” of agents and don’t decide or know what they want, and sometimes even after that, don’t go with the discount realtor. This causes significant “real estate wastage” so that when a transaction actually happens, that wastage is built-in in high commissions of an actual transaction. If all buyers are incentivized that lesser and more carefully they use, the bigger their refund will be and lessen the negative equity, then commissions can be lowered and wastage can be avoided.

High commissions have survived the onslaught of many discount brokerages and solutions and cannot be solved

This is due to the wrongful approach many took and failed. The first thing to realize is that real estate agents are needed. “For-sale-by-owner” or working without an agent will not work well when principals understand what agents do in detail. The key to reducing commission is to use market dynamics of an auction or bidding to reduce the charge to what is truly a “market” rate than a rate that has floated around for decades. The key is also to incentivize the buyer and seller to do lesser wastage on agent’s time with service tier definitions as lower commissions should not hurt agent’s hourly pay-rates. What is needed is a “true market commission” determined by bidding and auction across a large group of real estate agents, so that it remains fair to the principal buyer or seller and to the agent.